Lenders Accused Of Driving Up Call Rates

A section of the money market has accused the lenders of intentionally raising the interest rates in the inter-bank overnight money market. The reason being there have been significant inflows into the banking system in the first fortnight of May, but the rates have not fallen.

Firstly the Reserve Bank of India (RBI) was intervening in the forex market with a view to keep the Rupee from appreciating. It is estimated that this led to an inflow of Rs 1,500 crore into the system. In addition there was the redemption of 10.50 per cent 1997 on May 11 which led to an inflow of Rs 512.40 crore.

 

It is also estimated that in the month of May total coupon payments on the central government securities will be to an extent of Rs 2,600 crore. It was estimated that the coupon inflows would be to an extent of Rs 5,601 crore between April and June 1, 1997. Of this over Rs 600 crore to Rs 700 crore has already flown into the system. In spite of this the call rates are ruling at above eight per cent.

The borrowers are pointing out that the calls should be ideally ruling in the region of five per cent as against the prevailing eight per cent yesterday.

They contend that the lenders have cut back on their lending in the call money market thereby driving up the rates.

However, the leading lenders in the market say that the charges are baseless and added that the call rates have come down from 10 per cent to around eight per cent. "There can only be a gradual reduction in the calls. If I do not deploy my funds and keep them idle there is no way I can justify my position", says an official with a leading public sector bank.

After ruling at less than one per cent almost the whole of April the call rates had moved up to cross 10 per cent after the RBI had mopped up over Rs 5,300 crore by sale of 10 year state government paper at a coupon of 13.05 per cent.

Among those who have been complaining about the high call rates despite liquidity in the system are the primary dealers as well as the private banks.